Law School Case Brief
NXIVM Corp. v. Ross Inst. - 364 F.3d 471 (2d Cir. 2004)
An appellate court reviews the denial of a preliminary injunction for an abuse of discretion. It may affirm on any ground supported by the record. A party seeking a preliminary injunction in the federal district courts of the Second Circuit must show: (1) irreparable harm in the absence of the injunction; and (2) either, (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor.
NXIVM, producers of business training seminars, provides a course manual for the paid subscribers to its exclusive and expensive seminar training program known as "Executive Success." It is unpublished in the sense that it is not available to the general public. NXIVM claims to have developed a proprietary "technology" called "Rational Inquiry," a methodology to improve communication and decision-making.
Defendant Rick Ross runs two nonprofit websites (www.rickross.com and www.cultnews.com) in connection with his work as a for-profit "cult de-programmer." The websites provided information to the public about controversial groups, about which complaints of mind control have been lodged. Ross allegedly learned of NXIVM's activities in the course of his de-programming services, obtaining the manuscript indirectly from defendant Stephanie Franco, a one-time NXIVM participant.
NXIVM sued Ross and various co-defendants for copyright infringement, trademark disparagement under the Lanham Act and interference with contractual relations under state law (because the materials were allegedly procured through defendant Franco's purported violation of her non-disclosure agreement). Principally on the basis of the copyright infringement claim, NXIVM moved for a preliminary injunction to require that defendants remove the copyrighted information from Ross's websites. The district court denied the preliminary injunction, finding no likelihood of NXIVM's success on the merits because defendants' fair use defense was likely to succeed.
Did the district court properly deny NXIVM's request for a preliminary injunction?
On appeal, the United States Court of Appeals for the Second Circuit affirmed the denial of the preliminary injunction on the copyright infringement claim because plaintiffs were not likely to succeed on the merits. The appellate court further opined that even a finding of bad faith by defendants would not automatically preclude finding that their use was fair use. While the court did agree with the plaintiffs' assertion that the district court should have fully analyzed the impact of the alleged misappropriation of the seminar manual in assessing fair use, and should have considered the propriety of the alleged infringer's conduct, that is, whether it had acted in bad faith, even that fissue did not weigh in favor of NXIVM because it was still clear that the alleged infringing writings were undoubtedly transformative secondary uses intended as a form of criticism.
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